As per Section 138 of the Negotiable Instruments Act, if your cheque gets bounced, you shall be deemed to have committed an offence and shall be punished with imprisonment which may extend to two years, or with fine which may extend to twice the amount or with both.

An interesting situation arose when a cheque issued by the purchaser by way of advance payment for the purchase orders got bounced. Advance payment was a condition precedent to the contract between the purchaser and the supplier. The purchaser had intimated the supplier in writing to cancel the purchase order and requested to return the cheque. The supplier instead filed a criminal complaint for bouncing up of the cheque.

The Court held that if a cheque is issued as an advance payment for the purchase of the goods and for any reason the purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, the cheque cannot be said to have been drawn for an existing debt or liability. Thus Section 138 of Negotiable Act cannot be invoked. However, the aggrieved party has an option to file a civil suit.